Comair profitable without Govt help - CEO

13 September 2016

Johannesburg - Despite declining revenue in the domestic airline market, exacerbated by the weak economy, Comair [JSE:COM] has announced continued profitability for the financial year ending June 30 2016.

This year is the 70th anniversary of Comair’s operations, the 20th anniversary of its franchise agreement with British Airways and the 15th birthday of kulula.com.

CEO Erik Venter said on Tuesday he believes Comair is the only SA airline to return a profit for every year of its operation - a feat achieved "without the luxury of state bailouts".

Venter told Fin24 the main challenge in SA's airline industry at the moment is that there is currently no growth in the domestic market in terms of revenue.

"So we are happy to have grown revenue by 1% - although this is a small number - and our costs at least stayed neutral. The only factor that hurt us was the rand, due to the dollar write off, but hopefully there will be no repeat if the exchange rate stays the same," said Venter.

"If we can keep things constant for the year ahead, we will be good. We will also benefit from our new aircraft making us more efficient in 2017."

According to Venter, the airline has performed well in the context of a 27% weakening of the rand against the dollar. The volatility of the rand contributed to unrealised exchange losses of R73m on the revaluation of a $24.8m loan on one aircraft. As a result, profits after taxation for the year declined by 12% to R193m, yielding earnings per share of 41.5 cents, compared to 47.5c in the previous year. Headline earnings per share were 36.5c compared to 47.9c in the previous year.

The airline grew its revenue by 1% and passenger volumes by 6%, largely due to the strength of the kulula.com and British Airways brands. Venter also singled out the company’s ongoing focus on customer service, including achieving its threshold target of 85% on-time performance for both brands.

The company’s non-airline brands, such as flight training, travel product distribution, catering and airport lounges performed well, with their 6% revenue growth contributing 18% to profit from operations.

Cash generated from operations grew by R212m – an increase of 31% – resulting in a cash balance of R1.12bn at the end of the financial year, up from R849m in the previous year.

Local pain

Venter explained that the local aviation industry is under strain because of the weak SA economy and there still being too much capacity.

"It is hard for airlines. The extra capacity was triggered by new players in the market. Prices were pushed down and in my view they are not at sustainable levels," said Venter.

"Either prices must go up or capacity must be removed, although there seems to be a bit more resilience. From the airlines' perspective they are waiting to see if any capacity will be removed, but from a consumer perspective the current prices are good."

Fleet upgrade

The ongoing upgrade of the Comair fleet continues. This year Comair took delivery of three new Boeing 737-800s, with another scheduled for delivery in November - the last of the current order of eight.

The company has also ordered eight Boeing 737-8 Max aircraft for delivery from 2019 to 2021. These upgrades will continue to improve operation efficiency and customer comfort, while enhancing potential revenue per flight.

Venter said Comair’s focus on technology solutions is ongoing and aims to improve performance, customers’ experience and revenue opportunities through improved market segmentation and efficient operating procedures.

SAA claim

Comair’s claim against SAA for damages arising from anticompetitive conduct by the state airline between 2001 and 2005 was heard in the Gauteng South High Court earlier this year. The outcome remains pending. Venter said, although many variables are at play, he is optimistic about the outcome.

Asked for his opinion of the latest R5bn government "bailout" guarantee of South African Airways, Venter said the kind of action required at the national carrier is "extremely dramatic and to date they were not prepared to take those steps".

In his view, the new SAA board is good from a governance perspective, but the management team needs to be addressed as they are mostly in an acting capacity.

"I think we can expect just more of the same as before at SAA. The bailout is simply like giving a drug addict some money and saying you will feel better for a while - but it does not solve the problem," said Venter.

By late afternoon trade, Comair's share price was up 3.03% at R3.40.

This article first appeared on Fin24, see here.